The US Treasury office that enforces American economic sanctions against foreign regimes is calling for greater transparency and more private sector input from the securities industry, in a push to address concerns over who ultimately owns the assets in a host of transactions.

Adam Szubin (photo credit: Corbin)

A main area of focus in the securities industry for the department, known as the Office of Foreign Assets Control, is omnibus accounts, director Adam Szubin said. Such accounts, used by banks and broker-dealers, typically include sub-accounts for a variety of investors and clients, which can make it difficult for securities firms to identify the ultimate owners of particular assets.

Szubin said it would be a “team effort” to address the problem. He said: “How are [firms] going to have the transparency, the visibility into who their customer’s customer’s customer is? That’s a very challenging question.

“The banking world has grappled with it and has done some really positive things in terms of piercing the veil and seeing who the beneficial owner is. I think in the securities world, we’re not where we need to be yet.”

One particular area in which banks have made progress, he said, is in the transparency of cover payment messages for cross-border wire transfers.

Lawyers say omnibus accounts have long been a concern for watchdogs but that recent high-profile cases involving such accounts and regulators’ greater focus on beneficial ownership has turned up the heat.

Katrina Carroll, counsel at law firm WilmerHale, said: “For years, the securities industry said things would come to a grinding halt if they had to know every underlying customer’s customer or beneficial owner. Over time though, the government has pointed out instances where [omnibus accounts] have been abused.”

Clearstream Banking, a Deutsche Börse unit, paid $152 million in January to settle alleged sanction violations related to an omnibus account that held securities on behalf of the Central Bank of Iran.

Betty Santangelo, a partner at law firm Schulte Roth & Zabel, said policymakers faced a balancing act because omnibus accounts help facilitate more efficient transactions in global financial markets. She said that while sanctions are important, “if you had complete transparency you wouldn’t have the speed at which transactions take place”.

A raft of financial services firms have attempted to tackle increased compliance requirements stemming from know-your-customer and sanctions-related regulations. It emerged last month that Clarient Global, a firm majority owned by the Depository Trust & Clearing Corp that counts several of the largest investment banks among its shareholders, will collect and standardise information about institutional customers.

Szubin said he was optimistic about “greatly heightened awareness and concern” in the industry over compliance. However, he added: “We’re going to need to get the smartest feedback from the securities firms as to how they can feasibly and practically do this in a way that may have costs associated with it.”